2011 (9) TMI 510 - AT - Service Tax

Cenvat Credit on Outdoor Catering to provide food to employees - Held That - Commissioner Vs. Ultratech Cement Ltd. (2010 - TMI - 78203 - BOMBAY HIGH COURT) once the service tax was borne by the ultimate consumer of the service namely the worker, the manufacturer could not take credit of that part of the service tax which was borne by the consumer. On this basis, the respondent cannot claim CENVAT credit of that part of the service tax which was borne by their employees.

Summary

Issues:
1. Eligibility of CENVAT credit on Outdoor Catering service.
2. Interpretation of 'input service' under Rule 2(l) of the CENVAT Credit Rules 2004.
3. Application of the Hon'ble Bombay High Court's decision in Commissioner Vs. Ultratech Cement Ltd.

Analysis:

Issue 1: Eligibility of CENVAT credit on Outdoor Catering service
The appeal primarily revolves around the eligibility of the respondent to avail CENVAT credit on Outdoor Catering service used to provide food to their employees. The original authority allowed the credit, which was upheld by the lower appellate authority. The appellant argued that the service must be used in or in relation to the manufacture of goods to qualify as an 'input service.' The Tribunal considered the facts, noting that 25% of the service cost was recovered from employees. Relying on the Hon'ble High Court's decision in Commissioner Vs. Ultratech Cement Ltd., it was held that the service was integrally connected with manufacturing excisable goods, allowing credit but disallowing the portion borne by employees. The respondent was directed to provide evidence of partial cost recovery to determine the admissible credit.

Issue 2: Interpretation of 'input service' under Rule 2(l) of the CENVAT Credit Rules 2004
The appellant contended that a service should not be considered an 'input service' merely because its cost contributes to the production cost of excisable goods. They argued that the service must be directly used in or in relation to manufacturing. The Tribunal acknowledged this argument but emphasized the need for the service to be integrally connected with the manufacturing process. The judgment clarified that recovery of service cost from employees impacts credit eligibility, necessitating evidence of cost recovery for credit quantification.

Issue 3: Application of the Hon'ble Bombay High Court's decision in Commissioner Vs. Ultratech Cement Ltd.
The respondent relied on the Hon'ble Bombay High Court's ruling in Ultratech Cement case, which established the integral connection between Outdoor Catering service and manufacturing activities for credit eligibility. The Tribunal upheld this view, directing the original authority to quantify the admissible credit considering the cost recovered from employees. The judgment aligned with the High Court's decision, emphasizing the importance of evidence and compliance with legal standards in determining credit eligibility.

In conclusion, the Tribunal upheld the lower appellate authority's decision on the respondent's eligibility for CENVAT credit on Outdoor Catering service. The judgment highlighted the need for evidence of cost recovery from employees to quantify the admissible credit, aligning with legal precedents and ensuring compliance with CENVAT Credit Rules and relevant judicial decisions.